Sheffield records highest ever levels of overseas investment

222
Nick Wales, partner at Knight Frank

Sheffield’s commercial property investment market for 2016 has seen the highest levels of overseas investment ever recorded in the city according to Knight Frank.

The city’s office market drove record investment levels for the year, with foreign spend topping 60 million pounds and amounting to 82 per cent of turnover, with prestige properties like Vulcan House at the J2 Riverside Exchange and Riverside East office, home to law firm Irwin Mitchell, being snapped up.

Details from Knight Frank’s UK Regional Cities Review 2017 also highlighted a four-fold increase in Sheffield’s total investment volumes in 2016 over the previous year to reach £83m by the year-end, 60 per cent above the ten year average and the highest level of office investment in Sheffield for six years.

Nick Wales, partner at Knight Frank, said: “Overseas investment is the key headline for 2016, complemented by overall office investments which are at a six year high.

“Importantly, deal number was sharply up year-on-year with ten investment transactions completed. This compares to just two in 2015.

“Investors are seeing the potential of Sheffield being unlocked through exciting developments such as the new retail quarter, which is a long awaited boost for the city centre and is expected to be a catalyst for further inward investment, together with the Advanced Manufacturing and Innovation District, which has helped to give the City Region its own identity on an international level. Sheffield also offers excellent investment options compared to other major regional cities as it continues to offer better value from an investment perspective than Manchester, Birmingham or Leeds for example.

“The largest investment deal of 2016 was the acquisition of the 119,000 sq ft Vulcan House at the J2 Riverside Exchange by Spanish investor, Trinova Real Estate, with purchase price of £30.9m. The Home Office are the current occupants of the building with a lease running to 2028.

“Notably, the Trinova acquisition was the largest transaction to complete since 2014 and was one of two sales over £10m during the year.

“The sale of the 75,600 sq ft Riverside East office building for £23.4m was the other, bought by 90 North Real Estate on behalf of Arzan Wealth and Sidra Capital, the building is let to UK law firm Irwin Mitchell until 2027.

“In terms of deal number however, UK investors were the most active, accounting for five of the 10 deals completed. The largest transaction from a domestic buyer was the purchase of Derwent House by Pramerica Real Estate Investors on behalf of John Lewis Pension Fund for £8.7m.”

Despite huge investment success, the report highlights that the city’s Grade A office availability fell to a historic low in 2016 with little change expected until late 2017.

Peter Whiteley, partner and head of the Sheffield office at Knight Frank, said: “Sheffield had suffered from a shortage of high specification city-centre office space. This is now being addressed with exciting central opportunities, delivering needed Grade A space for both the existing market and potential inward investment enquiries to Sheffield. Buildings including 3 St Paul’s Place, Westfield House and Steel City House are incredibly well appointed and offer a quality working environment within the City Centre.

“We have also just been appointed to market the latest phase of Digital Campus with 80,000 sq ft of Grade A space coming available at Scarborough Group’s Acero building, set for completion in June 2017. Earlier phases secured occupiers including B Sky B and Kennedys Solicitors.

“Total office take-up in 2016 reached 201,500 sq ft, 36 per cent below the ten-year average, however the total for 2016, does not yet include the 140,000 sq ft agreement to lease with HSBC.”

The bank is to anchor the first phase of Sheffield’s new £480m Retail Quarter with completion due in 2019.

Peter added: “Aside from the HSBC deal, which offers a real boost to Sheffield’s new retail quarter, the largest occupier deal in 2016 was Arup taking 16,000 sq ft at 3 St Pauls Place, the final part of the £130m Heart of the City project. St Pauls Place is an established commercial development, with earlier phases occupied by DLA Piper, Barclays, Royal Bank of Scotland and PWC.

“3 St Paul’s Place was the first speculative build to complete after the recession and provides 10 storeys of the best office space available. Another notable deal was the 9,500 sq ft letting to leisure and gaming company Rank Group at Navigation House at the Canal Basin, which was an inward investment into the city.

The report demonstrates that occupiers from the Technology, Media and Telecommunications sector represented 23 per cent of 2016’s total take-up. The most notable deal from a tech occupier was the 7,840 sq ft letting to Zoo Digital at City Gate in a move from Furnival Tower on Furnival Gate.

In 2016, prime headline office rents remained unchanged at £23.00 per sq ft, but Knight Frank anticipates that prime rents in Sheffield will increase to £24.00 per sq ft by year-end 2017.

Peter said: “With supply of prime offices diminishing, we are now looking at rental growth in the office sector, which is positive news for investors and developers.”